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Tag Archives: frugal

Recently, I was chatting with a friend about the virtues of frugality and “living rich cheaply.” He responded, “it’s a lot easier for you to be frugal. You’re married. It’s expensive when you’re dating!” My friend has a point. I do remember those days as a single guy and it’s true that it isn’t easy being frugal when you’re dating…especially when you live in NYC. But, I think it’s still possible to do it frugally. Of course, I’m probably the last person you want to take dating advice from, so take it for what it’s worth. Or scroll down to the comments for input from people much more qualified in this area than I am!

According to Zoosk, a dating website, NYC is the most expensive city in the U.S when it comes to dating (costing $173.88), and Indianapolis is the cheapest city (costing $82.62). The cost of the date includes two movie tickets, two drinks, two cappuccinos, and dinner for two. According to Deutsche Bank’s “cheap date index,” a “cheap date” in NYC would cost $93, which includes McDonalds burgers, soft drinks, a movie, a few beers and a cab ride My friend likes to take his date to fancy restaurants to impress his date. I highly doubt that he’s taking them to McDonalds. I think many guys have this mindset. They feel the need to maintain an image and to show that they have money. However, I’ve come to realize that when you’re first getting to know someone, it makes little sense to spend a lot of money to “impress” her. You don’t know how the date will go and whether either of you guys have any chemistry. You’re better off going to a more casual, yet hip, place to get to know the person first. Furthermore, I think picking a fancy place can send the wrong message: that you’re trying too hard to impress her or buy her time. Here in NYC, even non-fancy restaurants can be pretty pricey. The type of person who is turned off by your selection of a less fancy restaurant might not be the right person for you anyway.

I think Thai restaurants are pretty affordable yet don’t give off the vibe of a cheap place. Alternatively, you might opt to meet up at a coffee shop instead. This way if you guys don’t hit it off, you won’t be stuck spending a whole meal together. In the “cheap date index,” it mentions movies as the go to activity for dates. However, I generally find movies make bad dates, especially when you’re first getting to know someone. You don’t get a chance to talk and to get to know that person when you’re sitting in a movie theater. Plus, movie tickets are expensive (about $15 per ticket and about $19 for 3-D movies, here in NYC).

Here are a few activities which are more fun and cost less than two movie tickets:
-Have a picnic
-go to a museum
-volunteer together
-go hiking
-go for a walk/run/bike ride
-go to the beach
-show off your cooking skills and make dinner for her

More specifically, in NYC,
-take a free ferry ride to Governor’s Island and go biking

I understand that I’ve made the assumption that the guy is paying for the date. Maybe I’m kind of old school, but I still think that the guy should probably pay in the beginning. I also know that it’s possible to use coupons/groupons to save money, but I wouldn’t want to do that in the beginning either. Even if your date is a frugal gal, I think you should save your coupons until a little later on into the relationship. The most fun, enjoyable, memorable dates that I had with my wife didn’t cost a lot. I’m not saying that you should never spurge, just that it’s possible to have a good time without going broke.

What other tips do you have for those who are frugal and in the dating world? What other activities are fun but frugal?

In my post Live Like a College Student, I encouraged new grads to continue being frugal and to save money. But what if you’re already frugal? I know a few friends and relatives in their 20s who aren’t living the high life and have a healthy savings rate, but unfortunately, the money is sitting idly in a bank account. So what should they be doing with their money instead?

Invest it!

“But I’m scared of the stock market,” you say

Rather than leaving a large amount of your savings in a bank account, make your money work for you. Many people, especially millenials, fear the stock market. While it is understandable to be apprehensive being that you observed the 2008 stock market crash and subsequent recession wreck havoc on many people’s finances. The media has also done a great job in scaring people. However, you have to invest your money if you want to build wealth. Hiding the bulk of your savings in your mattress or in a savings account won’t do that. In fact, the value of your money will be eroded by inflation. No one can predict what the stock market will do, but it’s very likely that another stock market crash will occur. But that’s okay because the stock market has historically given investors about an 8% return. Remember, you’re young and you’re a long-term investor. The next time there is a stock market crash, just think of it as stocks going on sale and a buying opportunity.

But I don’t know how to invest?,” you ask.

Index Funds

Other than being scared of investing, a lot of people are also intimidated because they don’t know the first thing about investing. Don’t worry if you don’t know much about investing or have any inclination to learn. You can set up a “lazy portfolio” and it’ll probably perform better than your friends who “think” they can beat the stock market. Or if you want to be even more hands-off, just invest in an “all-in-one” fund.

Some, on the other hand, think they know more about investing than they really do and “invest” in individual stocks. For most people, they’re better off sticking with index funds. Like many of my peers when I was in my 20s, I thought I could beat the market by predicting which stocks would soar. Well my track record is pretty poor, and I would have done a lot better just investing in an index fund.

Automate your savings

Automating your savings makes saving money easy. By having money automatically sent from your paycheck to your 401k/IRA account/etc, you take the stress out of saving. Even better, every time you receive a raise, increase the amount you save. I have received steady increases in pay the last few years, but my paycheck has stayed about the same. This prevents lifestyle inflation as you’ll never miss the money since it is out of sight, out of mind.

As for your 401k, don’t settle for saving up to the match. Save much more than that if you have decent options in your 401k (if not, invest in an IRA account). At my first job, my employer matched up to 5%, and I thought I was a rockstar when I increased my contribution to 7%. That’s just not going to cut it. But of course, at a minimum, invest up to what your company matches. Don’t make the mistake of many Boeing employees who have collectively turned down $98 million in matching funds by not contributing up to the match.

Real Estate: Should I buy or rent?

For most people in their 20s, just starting in their careers, it’s probably better to rent rather than buy a place. You want the flexibility just in case your career takes you someplace else. You don’t want to be forced to sell your home as there are transactional costs and you might get caught in a down market. Plus, you’re young, who wants to be stuck maintaining the yard and taking care of other home-related projects? However, there are some instances where I do think it would make sense to buy a house at that stage of your life.

I have a friend who purchased a duplex a few years after he graduated from college. He rented out one unit and also rented a room to a friend in his unit. The rental income that he received paid for his mortgage. He was living rent-free! Now, years later, the property has also appreciated so it’s been a great investment for him. So, I think it makes sense to purchase a house in your 20s if you’re purchasing the property as an investment and it will cash flow. It definitely depends on where you live. It makes sense to buy in some areas in the country, whereas it makes more sense to continue renting in other parts. Check out the Rent vs Buy calculator to help you make your decision.

Increase your income

Invest in yourself and acquire marketable skills to increase your salary. While in some circumstances you may need to go to graduate school, you don’t necessarily have to quit your job to acquire new skills, as it’s possible to learn new skills online. Check out Udemy or Treehouse. Another way to increase your income is to have a “side hustle” or part-time job. Check out this site for a list of 50 side hustle ideas.

What other advice would you give to someone just starting out on their financial journey? What advice would you give your 22 year old self about finances?

To many recent college grads, the often repeated financial advice is to continue to live like a college student. It makes sense, since a recent college grad is generally used to living a more frugal life. If you continue to live without inflating your lifestyle, you’ll save a good amount of money. However, even back when I was in college, many college students weren’t living like college students. Many took extra student loans and used credit cards to buy nice clothes, go drinking, go on spring break vacations and even buy fancy expensive cars. Apparently, they figured that once they graduated and received a steady paycheck, they would easily be able to pay off that debt. Unfortunately, most realize that once in the real world, with living expenses and lifestyle inflation, the debt just accumulates.

So rather than advising new grads to continue to live like a college student, let’s just tell them to live frugally. Billionaire Mark Cuban recently gave that exact advice to those in their 20s. He told them to live cheaply, and to use their 20s to pay off student-loan debt, avoid credit-card debt, and build savings. He explains that the cheaper you can live, the greater options you will have, whether you are building your own business or building a foundation for a successful career. He says that paying off debt and establishing a nest egg is far more important than buying a fancy house, car, and clothes. This is great advice, and your future self will thank you for following it.

Going from being a college student to a full-time worker, some lifestyle inflation is inevitable and understandable. You’re probably making much more than you’ve made in your life, though probably working more hours also. Spending that money might be awfully tempting if you don’t have a plan and financial goals. So what expenses do many new grads get caught up in?

Housing: This is probably the biggest expense in most people’s budgets. Sure, you might feel like you’ve had enough of living with roommates, and want your own apartment, but it’s much more affordable when you split the rent. Going back home to live with mom and dad may be an option for some and shouldn’t be discounted. I think after the 2008 recession, the stigma of living home with the ‘rents has subsided, though I’m not sure there ever should have been such a stigma.

Car: If you live in a city that has reliable public transportation, there may not be a need to even purchase a car. If you have a car from college, don’t rush to upgrade. I was driving my car from college 8 years after I had graduated. I had a friend from college ask me incredulously why I was still driving my car from college when he saw me years after we graduated. That didn’t bother me, though, as the car still ran fine and I didn’t have any car payments to make. Having a fancy car just wasn’t as important as not having any monthly payments to make.

Food: Eating like a college student doesn’t mean you should continue to subsist on Ramen and TV dinners. As a matter of fact, if you haven’t learned to cook by now, it’s probably a great time to learn. If I can learn to cook, you most certainly can as well. Cooking at home is much more affordable and healthier as well. To save on groceries, read my post with tips on that. And for tips to save money when eating out, read this.

Entertainment: You’re in your 20s, who I am to cramp your style and tell you to live like a hermit. You’re young. Have fun and enjoy life! Just make sure not to go overboard. There are plenty of things that you can do that won’t wreck your budget. Honestly, my best memories from my 20s are experiences hanging out with friends and family. More often than not, it didn’t matter what we were doing. And also remember that “shopping” should not be a form of entertainment. By getting rid of the consumer mindset early in life, you’ll save yourself a lot of stress and money.

By not taking on debt and having a healthy savings rate, you give yourself options and set yourself up for a financially bright future. Money, or the lack of it is often a hindrance when making decisions or when facing obstacles that life tends to throw at you. Having no debt and a good amount of savings gives you choices. Taking risks in your career or in your personal life is much easier at this point in your life, but not having money will be a huge impediment. Have a great idea for a start-up and want to quit your job to fulfill this dream? Not happening without some savings. Stuck in a rut and suffering from wanderlust? You can’t travel the world if you’re broke.Hate your job and want to take a risk by jumping into a different career track? It’s a lot less risky if you have an emergency fund.

The Millionaire Next Door is one of those books which truly inspired and influenced me after reading it right out of college. Before reading it, if you were to ask me to describe a millionaire, I’d describe someone who drives a fancy luxury car or flashy sports car. I would imagine that this millionaire would live in a mansion, have name-brand clothes, lots of jewelry, they would only be spotted in the trendiest clubs and take lavish vacations to exotic locales. This is how the media portrays the rich. They are the ones with the outward signs of the trappings of wealth.
The Millionaire Next Door, co-authored by Thomas Stanley shined a light on this myth and found that in actuality, most millionaires were frugal and lived beneath their means. They drive affordable but reliable cars. They live in modest homes in good neighborhoods.

A few weeks ago, Mr. Stanley passed away and a couple of people in the media took it upon themselves to proclaim that not only did the author die, the dream of the millionaire next door has died as well. Some even went further by making it a point that he died while driving a corvette, the type of car that surely a “millionaire next door” wouldn’t be driving.

I was pretty surprised at the criticism as the conclusions from the book are hardly controversial. It described the millionaire next door as one who spent less than they earned, avoided wasting money on status symbols, started their own business, and used the majority of their money to make money rather than spending it on consumer goods. As for Mr. Stanley driving a corvette, no one said you can’t enjoy life, you just have to do it within your means. I’m sure there were no car payments for that corvette.
The criticism of this mythological millionaire next door

Nassim Nicholas Taleb argued that the research suffered from survivorship bias: “What of the millions of investors who invested in the wrong things or whose paving companies failed? They outnumber the winners by a large margin. The book was written during an unprecedented bull market, and only a few years later the internet bubble burst and a few years after that we had a recession.” Taleb calls it luck.

The stock market has historically returned about 8 percent. Sure, the 90s were a great time to be invested in the stock market and it seemed like everyone was making money. But if you consistently invest money into a diversified index fund with low fees, you will reap the benefits of the upward trend of the stock market. While there will be periods where your return may be negative, as long as you stay the course and continue to save and invest, it has been shown to have positive results. You don’t have to worry about investing in the “wrong things.” I’ve invested through the internet bubble burst as well as the recent recession, and lived to tell about it. I am not yet a millionaire next door, but if I continue, I believe that I am on the right path there. As for Taleb’s argument that many businesses fail, I’m sure the millionaire next door would pick themselves up and start another business or find something else to be successful at. While luck plays a role in most success stories, luck generally favors the bold and those who are prepared to take advantage of opportunities. In any case, I prefer to make my own luck.

Thomas Frank described the millionaire next door as having a “militantly Calvinist attitude toward consumption” saving and investing are ends in themselves, evidence of moral virtue, while spending is empty dissipation.”

Wow, militantly calvinist attitude!? Where do I start? No where in my understanding of the millionaire next door was that of someone who scrimped and saved for the sole purpose of scrimping and saving. Perhaps financial security and freedom have little value to these critics of the book. I think the millionaire next door purchased modest homes in good neighborhoods and drove reliable yet older model cars. They are hardly militantly calvinistic, they just don’t see the need for status symbols.

Taleb also said, “I see no special heroism in accumulating money, particularly if, in addition, the person is foolish enough to not even try to derive any tangible benefit from the wealth…. I certainly do not see the point of becoming [a millionaire] if I were to adopt Spartan (even miserly) habits and live in my starter house.”

Oh the horror! Living in a starter house with only 3 bedrooms and a bathroom. Surely, we need to constantly upgrade to bigger homes so everyone has their own personal bathroom, man cave, guest rooms, playroom, den, office and large kitchen for entertaining. What these critics don’t seem to comprehend is the difference between being frugal and being cheap.

Helaine Olen argues that it takes money to make money, and those with well-to-do parents have a leg up. She says that they can help their children financially as well as with networking and paying for private school. While I do agree that children of those with money do have many advantages, I still believe this is the land of opportunity even for those without wealthy parents. No, it is not easy to become a millionaire next door. It will take hard work, discipline, and perhaps a bit of luck. But I still think that becoming the millionaire next door is still attainable.

Last week, a friend confided in me about his financial problems. He and his wife were living paycheck to paycheck and had many credit card bills piling up. He said that he talked to his wife about budgeting and cutting things like cable and eating out, but she wasn’t on board with doing those things. She didn’t understand why they had to make those “sacrifices” and said that they deserved some of the nicer things in life since they work hard. He was also stressed about what to get his wife for her birthday. She reminded him that it better be a NICE present, since she got him an expensive present for Christmas.

Having this conversation made me realize how lucky and fortunate I am that my wife and I are on the same page when it comes to our finances, especially since money issues are one of the main causes of stress in marriages. While my friend’s wife refuses to cut expenses and make a budget, my wife understands that we do it because we want to secure our family’s financial future. While my friend’s wife thinks that getting rid of cable and going out to eat less means deprivation and sacrifice, my wife recognizes that that is not always the case and that you can live rich cheaply.

As it is almost Valentine’s day, let me list just a few of the many reasons that I love about my frugal wife:

-I love that my wife thought that it was cute when I made her a homemade card for Valentine’s day when we were dating.

-I love that my wife thought it was sweet last Valentine’s day when I sent her a photo montage showing our journey together (the photo montage was set to the song “Best Day of My Life”).

-I love that my wife is fine with me not buying flowers on Valentine’s day…the prices are always jacked up.

-I love that my wife is fine if we do not celebrate Valentine’s day on that specific day…restaurant prices are also jacked up and service is poor because they’re so busy.

-I love that she enjoys taking walks with me

-I love that she knows that the amount of money I spend on her gift does not reflect how much I love and care for her.

-I love that she recognizes that a thoughtful inexpensive gift is better than a thoughtless expensive gift.

-I love that when we go out to eat, she doesn’t mind that we use coupons.

-I loved that when my co-workers shamed me for being frugal during Christmas, my wife and I were able to share a few laughs. My co-workers teased me for not being romantic and told me to immediately go to Tiffany’s or face the wrath of a disappointed and angry wife. They also told me that I was supposed to get a present from my then 5-month old son for my wife, but that I need not worry my cheap frugal self because this gift, unlike my gift, didn’t have to be extravagant. (Gee thanks…maybe I won’t have to raid my son’s college fund to pay for it). Well they must not know my wife that well, because she places our financial future above material goods.

I love that my wife did not demand a push present even though she probably deserved one. I mean she had an unintended homebirth and delivered our son by herself. If you don’t believe me, you can check the birth certificate where it says her name next to “attendant at birth.”

Maybe I’m not the “sweep-you-off-your feet” romantic type of guy. We’re both probably too practical for that anyway. But we try to “outlove” each other and constantly make an effort to love the other more and to make each other happy. Fortunately, we’ve also realized that buying material things and spending a lot of money doesn’t necessarily bring happiness. We work together as a team to get to the same goals. It would be much more difficult to attain our financial goals if we weren’t on the same page working together.

So even though I don’t say it enough…I love you Mrs. Living Rich Cheaply! Happy Valentine’s Day!